Interest-rate risk (IRR) is the exposure of an
institution’s financial condition to adverse movements
in interest rates. Accepting this risk is a
normal part of banking and can be an important
source of profitability and shareholder value.
However, excessive levels of IRR can pose a
significant threat to an institution’s earnings and
capital base. Accordingly, effective risk management
that maintains IRR at prudent levels is
essential to the safety and soundness of banking
institutions.